3) The Federal Reserve: Duties

The Federal Reserve’s task is written in its mandate: “To promote sustainable growth, high levels of employment, stability of prices, to help preserve the purchasing power of the dollar and moderate long-term interest rates.”

What this means in simple words is that the Fed is tasked with the job of keeping the economy of the US healthy, and to promote a sound banking system.

Banker’s Bank

Each of the twelve District Feds render services to financial organizations. This can be likened to a bank providing services to individuals like you and me. For example, there’s a good chance that when you cash a check or transfer money over the wire, a District Fed will handle it from one bank to the other. This intervention helps guarantee the security and efficiency of the US payment system.

Government’s Bank

The US government is among the biggest customers of the Federal Reserve. The US Treasury checking account is handled by the Fed. Any revenue from taxes and outgoing government payments are handled through this account. The Fed also sells and redeems government securities such as notes, bonds and Treasury Bills.

Although it is the US Treasury that produces the actual money, it is the duty of the Fed, among other things, to issue and distribute all coin and paper currency. Included in their responsibility is to check bills for wear and tear and to take damaged currency out of circulation.

Regulator and Supervisor

The Federal Reserve Board (FRB) acts as both a regulator and supervisor. It oversees that the banks that are members of the system, the foreign activities of member banks, the international banking facilities in the US and the activities of foreign-owned banks in the US, and acts in the interest of the public.

To do this, the FRB develops federal laws governing consumer credit. A few of these laws are the Home Mortgage Disclosure Act,theĀ  Truth in Savings Act, the Truth in Lending Act, and the Equal Credit Opportunity Act.

If you are wondering who sets the margin requirements for investors, it is the FRB. This limits the amount of money an investor can borrow to buy securities. Currently, the requirement is set at 50%. This means that with $500, the investor can buy securities worth up to $1000.

Policy Maker

Perhaps the most important duty of the Fed is devising and implementing monetary policy. This is their primary responsibility and number one priority.